Finance. Financial Accountability 02/09/2018. Financial Accountability for Nonprofits. Finance Sales Tax Best Practices Accountability Risk Management

Transcription

1 Financial Accountability Important Stuff Nonprofit Boards MUST Know Presenter Miriam Robeson, Attorney February 9, 2018 Financial Accountability for Nonprofits Finance Sales Tax Best Practices Accountability Risk Management Finance Basics of Financial Statements 1

2 What are Financial Reports? How Complicated Must They Be? Basic Reports Income/Expense Balance Sheet Intermediate Reports Compilation Review Advanced Reports Audit Statement of Financial Position Basic Reports Handout: Sample Financial Report Nonprofits < $50,000/year annual income Income/Expense (aka: Profit & Loss, P&L, Cash Flow) Reports income from all sources, all expenses Include Restricted Funds Should be provided at every board meeting What s missing from this one? Basic Reports Nonprofits < $50,000/year annual income Account Balance (aka: Balance Sheet) Cash account balance Asset balance Should be provided at every board meeting (in some form) What are Retained Earnings? Accumulated net income from all previous years 2

3 Basic Reports 501(c)(3) Nonprofits < $50,000/year annual income Year-End Accounting Year-End Review Internal (Audit/Review) Compilation Review Audit Government Reporting IRS 990N State NP20 Intermediate Reports Annual Income $50,000 - $250,000 Same as Basic -PLUS: Internal Audit Team CPA Review or Audit Some detailed reports Additional Financial procedures IRS 990 EZ (not 990N) Advanced Reports Nonprofits > $250,000 Annual Income Also - significant government grants All Reports in Basic and Intermediate PLUS Additional Financial Procedures Financial - IRS 990 required Full Audit Financial Information Financial Management Assets and Inventory 3

4 Finance - Audit Review Basic Comprehensive Internal Compilation Review Full Audit Performed in house or informally Most Basic (least expensive) Medium Review (and cost) Most Expensive Generally not accepted for grants or government Suitable for very small nonprofits Only reviews financial information on the surface Bank Statements, Financial records provided by client Reasonable Basis Does not review policies, procedures, internal controls Most Comprehensive Review of Finances, Financial Practices, Board practices Provides minimal oversight and protection No assurances, no opinion Financial Compliance - Federal <$50, N Change in threshold beginning 2010 On-line ONLY Due after end of fiscal year NO extensions of time! IRS 990 Form >$50, EZ/990 Due month automatic extension For most nonprofits 990 EZ Minimal property or real estate Normal gross receipts < $200,000 Total Assets < $500,000 Failure to file automatic revocation of 501(c)(3) status Other Compliance - State Annual Business Entity Report Indiana Secretary of State bi-annual Entity Annual Report (E-1) Indiana State Board of Accounts Financial Reporting for Government Funds NP-20 Indiana Department of Revenue 4

5 Sales Tax When do you need to collect sales tax? When are you exempt from paying sales tax? Sales Tax Rules Collecting and Paying Sales Tax Sales more than 30 days in a calendar year Intermittent or consecutive What about internet sales? Does not apply to sales to members Books, membership supplies, etc. Getting in the System Collecting and Paying Sales Tax Indiana Department of Revenue BT-1 Online Application $25 fee Retail Merchant Certificate Register for IN TAX (online reporting and paying) 5

6 Reporting Requirements Collecting and Paying Sales Tax Monthly reporting Even if you DO NOT HAVE SALES Report Zero $0.00 sales Penalty for failing to report Seasonal Reporting Must be approved for seasonal reporting Report only the months of sales Report and Pay online Be sure you BOTH Report and Pay Sales Tax Rules Exemption from Sales Tax for purchases Must be Indiana Nonprofit Corporation Must have Tax ID# Does not need to be STATE tax ID# Do NOT need to file BT-1 Exemption from paying sales tax for purchases for nonprofit purposes Does not include meals, hotels May not be worth the trouble (larger vendors) Must use ST-105 Form Best Practices Best Practices For Financial Oversight And Management 6

7 Nonprofit Financial Best Practices Compliance, Competence, and Confidence Practice clear, decisive financial governance Adopt Ethics and Conflict of Interest Policies Implement Financial Controls Engage regular, independent financial review Promote transparency of Reporting Develop a Risk Management Plan Know emerging nonprofit financial issues Clear, Decisive Governance Best Practices for Conduct Proper policies in place Review all financial documents Procedures to verify data Safeguard Nonprofit assets Compliance with legal and tax reporting Accountability Requirements to protect the financial integrity of the nonprofit 7

8 Accountability The Buck Stops with the Board Board reports to Donors Government Sponsors Grantors Constituents Are you Good Stewards of the resources the public entrusts in your care? What is Financial Accountability? The Board is Responsible for: Knowing the financial status of the NP Understanding the financial status Acting on financial needs of the NP Preventing financial mishaps Mitigating financial crisis Financial Accountability Basic Requirements Handout 10 Financial Priorities for Nonprofit Boards Financial Policies Financial Controls Monitor appropriate use of nonprofit funds Rules for Charitable Donations Audit - review 8

9 Accountability Financial Policies Policies for Handling Money Recording Money Reporting Money Handout Nonprofit Financial Control Policy Handout 10 Tips for Keeping an Eye on Finances Accountability - Financial Oversight Watch the money - Watch the people Financial Oversight is the review of both finances and financial practices Ensures safe, ethical financial procedures Protects Nonprofits and the Directors/Staff Provides integrity and transparency to the public Catches financial difficulties before they become financial impossibilities Handout: Top 10 Rules for Charitable Donations Accountability - Charitable Donations Watch the Rules regarding charitable donations! What can be considered a donation? What paperwork is required? Donations of goods or funds > $250 require written acknowledgement Magic language: No goods or services were provide in exchange for this donation NOTE donations of TIME and EXPERTISE are NOT deductible! 9

10 Handout Conflict of Interest Policy Handout Document Destruction Guidelines Accountability - Governance Conflict of Interest Personal Benefit Abuse of Status Ethical Standards Board Staff Volunteer - Donor Ethics/Conflict of Interest Best Practices for Integrity Conflict of Interest Policy Signed by Board and Staff annually Practiced openly Transparency critical to credibility! Ethics Newspaper Headline Test Appearance of Impropriety Improving Fiscal Health General Tips for Healthy Nonprofits Pay attention to finances as well as mission Recruit Board members based on need Embrace in-kind donations but have a plan Make smart decisions about facilities Growth is not always good watch mission creep and inadequate capacity 10

11 Risk Management Steps to Identify and manage nonprofit financial risk Risk Management for Nonprofits Best Practices to Prevent Financial Crisis Identify Risk Ranks Risk Identify Policies to manage risk Implement protections Implement procedures in event of crisis General Liability Insurance Don t Leave Home Without It! Slip and Fall insurance for basic activities Most places require it Facility rental NOTE Usually DOES NOT COVER MEMBERS Personal Injury Working with other organizations Property Damage 11

12 Risk Management D&O Insurance Directors & Officers Insurance Protects - Board and Key Staff D&O Insurance covers Breach of Duty Wrongful acts of the board Mismanagement What D&O Does Provides legal defense Pays claims What D&O Doesn t Normal liability claims Criminal acts Risk Management Plan Types of Risk to Manage People Board members, volunteers, employees, clients, donors, the public. Property Buildings, facilities, equipment, materials, copyrights, trademarks Income Goodwill sales, grants, contributions, sponsors, fund raising reputation, stature in community, ability to raise funds and appeal to prospective volunteers Risk Management - People Embezzlement by employees Embezzlement by officers Embezzlement by members Fraud from outsiders Trust But Verify 12

13 1%2%2% 4% 5% Who Commits Fraud? High-level fraudsters (Officers/Directors) cause greatest damage more than 3x more costly, and take longer to detect. More than 85% have never been previously charged or convicted. Behavior warning signs: Living beyond means and experiencing financial difficulty Do anti-fraud measures help prevent fraud? YES The 2014 Global Fraud Study found that organizations that had common controls in place had Significantly fewer losses (in # and $) Shorter time-to-detection 2014 Global Fraud Study, Association of Certified Fraud Examiners Handouts 10 Ways to Catch Fraud and Mistakes from Outside Handout 15 Ways to Minimize Employee Fraud Primary Control Weaknesses for Victim Orgs. 32% 7% 8% 19% 20% Lack of Reporting Mechanism Lack of Clear Lines of Authority Lack of Employee Fraud Ed Lack of Independent Audit Other Lack of Competent Oversight Poor Tone at the Top Override of Existing Controls Lack of Management Review Lack of Internal Controls Preventing Fraud Have and use financial control policies Know who handles the money Remove temptation Review financial information ALSO - have independent review of finances Be aware that it can happen to your nonprofit! 13

14 Know Emerging Nonprofit Issues Best Practices to Staying Current Subscribe to Nonprofit forums Board Source, INRN workshops Listen to your stakeholders What concerns affect them? Listen to your professionals Attorney, CPA Financial Accountability for Nonprofits Finance Sales Tax Best Practices Accountability Risk Management Any Questions? Thank you for your attention! Miriam Robeson, Attorney Today s materials are available on Miriam s Website: Contact Miriam at: MiriamRobeson@lawlatte.com 14